Seán Crowe (Dublin South West, Sinn Fein)
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Question 37: To ask the Minister for Jobs, Enterprise and Innovation the market failures in lending to small and medium enterprises that necessitate a partial credit guarantee scheme. [11319/12]

Richard Bruton (Dublin North Central, Fine Gael)
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I have committed to introduce a carefully targeted Temporary Partial Credit Guarantee Scheme on the basis that it will deliver positive returns to the economy and will address the competitive disadvantage being experienced by specific categories of Irish SMEs. The Scheme will be exclusively targeted at commercially viable micro, small and medium enterprises, i.e. well performing companies that have a solid business plan and a defined market for their products or services, thereby demonstrating their ability to repay the loan, but that do not secure credit facilities due to the following two market failures:

1) Insufficient collateral for the additional facilities, or,

2) Growth / expansionary SMEs which due to their sectors, markets or business model are perceived as a higher risk under current credit risk evaluation practices. In this way, the scheme will complement, rather than be a substitute for, existing lending activities by the main financial institutions.

We have identified two distinct characteristics of the Irish SME lending market which provide the rationale for a Temporary Partial Credit Guarantee scheme. Firstly, there is a cohort of commercially viable companies in the SME sector with growth potential that have experienced difficulties accessing credit as they do not have the security required for conventional collateral based bank lending. Second, there is also an issue that predates the recent banking crisis, whereby new companies or expanding companies engaged in new sectors, new technologies and markets struggle to secure finance. This can be due to a lack of familiarity or understanding on the part of the banks, of the new industry, the new product or the potential of new markets. SME customers particularly affected, include those involved in software, medical devices and other specialist products and services sectors. This market failure in the provision of credit to viable businesses became particularly acute in Ireland during the property bubble, during which time the Irish banks lost the capacity to assess credit risk in companies that were unable to offer property related collateral.

The cohorts of SMEs targeted by this initiative are of strategic importance to national enterprise policy objectives. The Scheme will also place Irish SMEs on a more level footing with international competitors that have access to similar schemes in their own countries. A key objective of this intervention is ensuring that the Scheme will add value to the measures already taken by the Government to address the SME credit supply issue and represent value for money to the State.